Wells Fargo (WFC) to Divest Assets of Auto Lending Segment

Wells Fargo & CompanyWFC has entered into an agreement with Popular BPOP to divest certain assets and liabilities of its auto finance business in Puerto Rico. The all cash deal is expected to close by mid-2018.

Wells Fargo’s auto lending segment landed in trouble last year when its customers were financially hurt due to issues related to auto Collateral Protection Insurance policies. Per its fourth-quarter earnings release, auto loan originations fell nearly 33% on a year-over-year basis.

Terms of the Deal

The deal has been valued at $1.7 billion which reflects a 4.5% discount on the value of assets that are to be sold.

Reliable Financial Services and Reliable Finance Holding Company, subsidiaries of Wells Fargo, will sell about $1.5 billion in retail auto loans and $340 million in commercial loans to the banking subsidiary of Popular, Banco Popular de Puerto Rico.

Past Divestures

Recently, Wells Fargo divested its Shareowner Services business to Equiniti Group plc for $227 million. Equiniti Group is the leading provider of share registration and associated investor services in the United Kingdom.

Further, in November 2017, the bank completed the sale of Wells Fargo Insurance Services USA to USI Insurance Services. The motive behind this divesture was to bring banking activities back into focus.

Our Viewpoint

Wells Fargo has been trimming its operations ever since its downward journey started after the fake account scandal in September 2016. Earlier this month, the Federal Reserve put a cap of $2 trillion on its assets. This is likely to further push the bank into concentrating on core operations.

Though litigation costs will continue to be burden in the near term, the bank’s cost-cutting initiatives might lend some support to its financials. Also, its strong capital position and much attentive management might keep it from falling into trouble again.

Shares of Wells Fargo have gained 13% over the past six months, underperforming 15.4% rally for the industry it belongs to.

A couple of stocks worth considering in the same space are The PNC Financial Services Group PNC and Citigroup C,both carrying a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for PNC Financial has increased 3.1% for the current year, in the last 30 days. The company’s share price has increased 24.7% in the past year.

Citigroup has witnessed 4.7% upward earnings estimate revision for 2018, in the last 30 days. Its share price has risen 27% in the past year.

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